An agreement between Gov. Jon Huntsman Jr. and legislative leaders on how to cut the budget to deal with more than $272 million in revenue shortfalls was reached late Thursday night, after lawmakers agreed to restore a tax break at the governor's request.

Huntsman called the Legislature into special session to balance the state's $13 billion spending plan for the budget year that began July 1. Lawmakers have agreed to, in effect, cut 3 percent from most state agency budgets and are postponing bonding for ongoing transportation projects until the 2009 Legislature.

"I think we are there" in the final budget balancing, said Rep. Brad Dee, R-Ogden, House majority assistant whip, on Friday morning.

The staffs of Gov. Jon Huntsman Jr. and the Legislature "worked much of the night" to fill in areas that needed more funding so their 3 percent cuts wouldn't be too harmful.

But House Minority Leader Brad King, D-Price, said there are still areas House Democrats worry about.

"We would like to take more ongoing tax money out of transportation, either bond for that money or delay some projects, and put that into Human Services," said King, adding that he doesn't want Utah's needy to be harmed.

House Minority Whip David Litvack, D-Salt Lake, said: "In some areas we are cutting off our nose to spite our face." In Corrections, for example, they are cutting back on inmate treatment programs. That could increase inmate recidivism.

"Those folks may be just right back in prison (after committing a new crime after being paroled), so we aren't saving any money. We're costing taxpayers more" and could be harming public safety, said Litvack.

Lawmakers spent much of Thursday meeting in appropriations subcommittees, dealing with the details of what was a complicated process of cutting budgets by 4 percent, with the promise that most state agencies would get back 1 percent of those reductions.

Public schools are the exception. Both the governor and legislative leaders agreed from the onset to "hold harmless" public school spending by restoring all of the money cut from classrooms.

State agencies reported to the governor's office that nearly 199 positions would have to be cut, but it was not known Thursday night how many of those jobs are currently filled.

Although the governor sought to bond for about half of the shortfall to cover transportation and building projects that were to have been paid for with cash, lawmakers said they found enough of those one-time monies to keep the work going through the end of the year.

Senate President John Valentine, R-Orem, said the state will end up having to bond for at least $19 million come January to continue the transportation projects. That number could climb even higher. But, he said, taxpayers should be happy that the state chose not to borrow money in a budget crisis.

"You should be pleased your Legislature does not do like the federal government and borrow money when we don't have the money to pay for things," Valentine said when asked what the average Utahn should take from the special session.

The sticking point with the governor in the late-night negotiations, however, wasn't bonding  it was an $18 million tax break for self-employed Utahns who have to buy their own health insurance. Huntsman spokeswoman Lisa Roskelley said the tax break, set to take effect Jan. 1, was a key piece of the governor's health system reform effort.

House Speaker Greg Curtis, R-Sandy, said the money to cover the tax break will come from interest earned by the state's Rainy Day fund, as well as another source he said was identified by the governor's office. Valentine said the funding sources were still being reviewed to make sure there was enough money available.

The Senate president said he expected the budget to pass quickly on Friday, once the final details are worked out by the legislative fiscal analyst's office and the bills are printed. The budget adjustments will have to be approved first by the Executive Appropriations Committee, but Valentine said the session could end by mid-afternoon.

At least one state agency, higher education, will end up taking a bigger budget hit. Senate Majority Leader Curt Bramble, R-Provo, said higher education officials agreed to a 4 percent cut, along with giving up their non-lapsing funds, to help soften the budget blow for other state agencies. Lawmakers also have assurances tuition will not be raised to cover the higher education budget shortfall, he said.

Even the Legislature is cutting back. Bramble said an overall budget cut in the legislative branch of between 4 percent and 5 percent will include lawmakers forgoing a $10-a-day increase in their per-diem, now at $120 for each day they meet. That increase was to take effect Jan. 1.

"This is largely symbolic," Bramble said of the pay cut for legislators. "This is a message that we understand budget cuts."

The Utah Public Employees Association has already been hearing from state workers who fear they will lose their jobs as a result of the cutbacks.

"Employees are scared," said UPEA Executive Director Audry Wood. She said "it's hugely frustrating" that public school teachers are not in danger of losing their jobs at the same time nearly 199 positions are being eliminated from state government. It is not yet known how many of those positions are filled.

"It's hard to feel warm and fuzzy about your snow-plow driver," she said. "With education, they have our kids."

The governor asked state agencies to come up with a 3 percent budget reduction, which totaled nearly $185 million, but the Legislature's GOP majority asked for an additional 1 percent cut.

Senate Minority Whip Gene Davis, D-Salt Lake, said he was concerned about the effect on health and human services programs, warning against balancing the budget "on the backs of the poor."

Senate Minority Leader Mike Dmitrich, D-Price, said Senate Democrats support the approach the GOP leadership is taking to deal with the budget shortfall.

Dmitrich, who is not seeking re-election this year, said the real crunch will come when the 2009 Legislature convenes in January to start work on the new budget.

Legislators have to cut $272.4 million from the general and education funds because of dropping state revenues in the current budget year. But the state also ended the 2007-08 fiscal year June 30 with an $81.5 million shortfall.